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Q27E

Expert-verified
Horngren'S Financial And Managerial Accounting
Found in: Page 776

Short Answer

Question: Preparing operating activities cash flow—direct method

The accounting records of Four Seasons Parts reveal the following:

Payment of salaries and wages $ 34,000

Net income $ 21,000

Depreciation expense 10,000

Payment of income tax 16,000

Payment of interest 17,000

Collection of dividend revenue 5,000

Payment of dividends 5,000

Payment to suppliers 51,000

Collections from customers 116,000

Compute cash flows from operating activities using the direct method for the year ended December 31, 2018.

Answer

Net cash provided by operating activities is $3,000.

See the step by step solution

Step by Step Solution

Step 1: Cash flow from operating activities

Cash flows from operating activities

Receipts:

Collection from customers

$116,000

Collection of dividend revenue

$5,000

Payments:

To suppliers

($51,000)

To employees

($34,000)

For income tax

($16,000)

For Interest

($17,000)

Net cash provided by operating activities

$3,000

Step 2: Treatment of net income

Net income is used while preparing cash flow statement by indirect method.

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